- The Pound Sterling dips slightly below 1.2500 due to multiple headwinds.
- Investors expect UK interest rates to remain steady at 5.25% with less-hawkish BoE’s guidance on interest rates.
- Fed’s Kashkari supports keeping interest rates steady for the entire year.
Pound Sterling (GBP) Slips Below 1.2500 Against the US Dollar (USD) Amid Uncertainty Ahead of BoE Decision
The Pound Sterling (GBP) dropped below the key psychological level of 1.2500 against the US Dollar (USD) in Wednesday’s London session. The GBP/USD pair faced significant selling pressure due to several factors, including a strong recovery in the US Dollar and uncertainty surrounding the Bank of England’s (BoE) interest rate decision on Thursday.Interest rates in the United Kingdom are expected to remain steady at 5.25% for the sixth consecutive time. However, the BoE could adopt a slightly dovish stance on future interest rates. Policymakers are optimistic that headline inflation could return to the target rate of 2% in April, as noted by BoE Governor Andrew Bailey during the International Monetary Fund’s annual Spring Meeting last month.Markets expect the BoE to start lowering interest rates after the June meeting. Traders are pricing in a 53 basis point (bps) reduction this year, implying at least two quarter-point cuts. Previously, only one rate cut was fully anticipated after March inflation data showed a smaller-than-expected slowdown in price growth. Expectations for multiple cuts were bolstered after Governor Bailey mentioned that speculation of two or three rate cuts this year is reasonable.
Daily Market Movers Digest: GBP/USD Falls While USD Recovers
Pound Sterling Correction: GBP slipped below the psychological 1.2500 support level against the USD as the appeal of risk-sensitive assets weakened following hawkish comments from Minneapolis Federal Reserve President Neel Kashkari on Tuesday.Kashkari’s Hawkish Outlook: Kashkari expressed concerns over slowing disinflation due to a strong housing market and warned that interest rates may need to stay high for the rest of the year. He emphasized that multiple positive inflation readings and signs of job market weakness would be required to justify a rate cut.US Dollar Index (DXY) Recovery: The USD Index, which measures the USD’s value against six major currencies, climbed to 105.50, recovering most of the losses from weak US Nonfarm Payrolls (NFP) and ISM Services PMI data for April.Fed Rate Cut Speculation: Despite Kashkari’s hawkish tone, speculation remains firm that the Fed will cut interest rates from current levels in the September meeting. According to the CME FedWatch tool, traders anticipate two rate cuts this year.Fed Policymakers’ Speeches: This week, investors are closely monitoring speeches from Fed policymakers due to the absence of major US economic data. On Wednesday, Fed Vice Chair Philip Jefferson, Boston Fed President Susan Collins, and Fed Governor Lisa Cook are scheduled to speak about interest rates.
The Pound Sterling fell slightly below the key psychological support level of 1.2500. The GBP/USD pair is under pressure after encountering strong resistance above the neckline of the Head and Shoulders (H&S) pattern on the daily chart. On April 12, the pair experienced a sharp sell-off after breaking below the neckline of the H&S pattern, which was formed around the December 8 low near 1.2500.
Investors are cautious about the near-term outlook as the pair struggles to hold above the 20-day Exponential Moving Average (EMA), currently trading near 1.2520.
The 14-period Relative Strength Index (RSI) oscillates between 40.00 and 60.00, indicating indecision among market participants.